Rafale deal questioned by Ministry of Defence officials

Two senior officials question the methods adopted by the contract negotiation committee to declare Rafale as the lowest bidder.

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Saurabh Shukla

New Delhi

February 18, 2012

UPDATED: February 18, 2012 11:28 IST

The mother of India's defence deals, the Rs 62,000-crore contract for the medium multi-role combat aircraft (MMRCA) Rafale won by the French company Dassault, may become a bag of woes for the government.

Rafale bagged the deal because it was declared as the lowest bidder after the evaluation of the commercial bids of all the participating companies.

But highly placed sources said two senior officials of the defence ministry have questioned the methods adopted by the contract negotiation committee which concluded that Rafale was the lowest bidder.

The two officials - additional financial advisor and a joint secretary in the ministry Prem Kumar Kataria, and finance manager (air) R.K. Arora - are members of the negotiation committee that comprises senior ministry officials and Indian Air Force (IAF) officers.

The two officials noted that certain assumptions had been made about Rafale's bid to declare it as the lowest bidder, but no one had validated it. The officials initially refused to sign the minutes of the committee. They later signed after making their reservations known. They put written notes on the file on January 24, according to officials privy to the negotiations.

Sources say Defence Minister A.K. Antony wants to steer clear of any controversy and has instructed that the committee should settle the issue internally.

The ministry officials are particularly cagey in the wake of corruption scandals. "We don't want the ghost of Bofors to haunt us, so we want to make sure that all procedures are strictly followed," an official said on condition of anonymity.

The process to acquire MMRCA was set in motion in 2001, when the IAF sent out its request for 126 jets. The defence ministry announced a formal request for proposal in 2007.

First, the submitted proposals were technically evaluated to check for compliance with IAF's operational requirements. Then extensive field trials were conducted. Finally, the shortlisted vendors' commercial proposals were examined and compared.

According to sources, while evaluating the commercial bids, a new system was followed that not only took into account the unit prices but also calculated the 'life cycle costs' - which takes into account the cost of maintenance and spares for the period, estimated at 40 years, the aircraft would remain operational. The sources said the whole formula was based on certain assumptions, which have now been questioned.

The contract negotiation committee's report goes to the defence minister, who forwards it to the finance minister. Since the finance ministry will evaluate the MoD's recommendation, the objections made on the file could create a problem. The government, already facing a lot of heat over several corruption scandals, will not like to be questioned over the biggest defence purchase.

However, these are early days and the signing of the contract is still a long way, as the defence minister said on Friday.

Antony said: "It will have to pass through scrutiny in eight stages. After the negotiation committee, it will come to the ministry where there will be at least four stages of scrutiny by defence finance. Then it will go to independent monitors appointed by the CVC and then to the National Security Council secretariat and the finance ministry."